A Michigan House committee held a hearing Tuesday on an online casino bill, the first step in the process to pass the proposal once again.
The Wolverine State legislation would allow the three Detroit casinos and the 23 tribal casinos sprinkled around the state to offer their games over the internet. It would subject online gaming to an 8% state tax rate, and the Detroit casinos would pay an additional 1.25% to the city.
“This is about the future of the gaming industry and making sure Michigan remains competitive,” state Rep. Brandt Iden, a Republican, stated during the Regulatory Reform Committee hearing. Iden sponsored the previous iteration of the Michigan Lawful Internet Gaming Act, which was surprisingly vetoed last year by former Gov. Rick Snyder, also a Republican.
State legislators didn’t deliver the bill to Snyder until around Christmas, so it was very late in the session when the ex-governor received it. There was no time left to consider an override of the veto.
This time around, the legislation hit the table in early March, and a hearing was immediately on tap. Lawmakers should move far more quickly on the legislation in 2019, potentially delivering it to Gov. Gretchen Whitmer, a Democrat, in either late summer or early fall.
Not the state’s first rodeo
Michigan has considered online gambling for about five years, and Tuesday’s hearing moved fast. Even with new legislators in the mix this session, which was the reason the online casino bill wasn’t introduced even earlier, it was apparent that the state is pretty up to speed on the benefits of regulating an industry that currently exists as an untaxed black market.
The Detroit casinos were represented at the hearing, as was The Stars Group, owner of the prominent PokerStars brand. GeoComply, a prominent geolocation provider, also testified.
Despite a proposed effective tax rate of 9.25%, the Detroit casinos stated that online gambling is predominantly about bringing people into the brick-and-mortar properties. While the state tax rate is virtually the same, the casinos fork over roughly 12% of their casino win to Detroit.
The relatively low online gaming tax rate is sound policy, according to the casinos, given the high costs associated with launching an online gambling operation.
According to the Detroit casinos, black market online gambling is taking away from gaming revenues that they could be generating at the brick-and-stick facilities. The casinos said that the Lawful Internet Gaming Act will not only create new jobs, but also protect the roughly 8,000 casino industry jobs that currently exist in Detroit.
The Detroit casino market saw a record $1,444,099,783 in gaming revenue in 2018, but it was up only 1.4% compared to the previous high set in 2011. The market hasn’t grown when adjusting for inflation. It’s worth noting that slot machines account for 81% of the Detroit casino market.
A representative for the Detroit casinos wasn’t impressed with the record revenue. “We finally beat 2011,” he said. “It took seven years to get back to the 2011 level.”
Though it probably wasn’t necessary at this stage in the game, a representative from TSG told the committee that offshore gambling sites don’t offer any consumer protections and that the best way to protect “your children, the elderly, the vulnerable” is through regulation.
‘Potentially’ sports betting
Michigan will eventually have sports betting, whether it’s over the internet and on smartphones, in brick-and-mortar casinos, or both. Under Iden’s legislation currently on the table, gaming regulators “may permit internet gaming operators … to accept internet wagers … on any amateur or professional sporting event or contest.”
There are no provisions in the bill for brick-and-mortar sports betting. The idea behind the single line in the bill is to provide a route for sports betting independent of any additional legislation. It could also set the tax rate for mobile sports wagering the same as the other online casino gambling offerings.
Iden reiterated at the hearing Tuesday that the legislation would “potentially” lead to gambling on sports.
Online gambling is more of a legislative priority for Iden. It’s with good cause. The efforts for those games predate the 2018 U.S. Supreme Court ruling that overturned a ban on traditional sports betting outside of Nevada. Proponents of Michigan gambling modernization, as well as consumer protection, want to cross the online casino finish line before tackling sportsbooks.
Additionally, a sports betting bill is more complex. The online gambling bill doesn’t involve the sports leagues, which will try flex their lobbying muscle over a stand-alone sports wagering measure.
Moving on from veto
Snyder’s vetoes were mentioned on a few occasions during the Tuesday hearing, but not a lot of time was put into speculating on his motivations in blocking the measure. Policymakers and stakeholders are more than ready to move on.
Iden did mention that he talked with the Michigan Lottery after Snyder’s veto, and he said he was assured that legalized online casino games wouldn’t adversely impact state lottery revenues. Snyder referenced a potential impact on lottery revenues in his veto letter.
“I don’t believe that was really the issue,” he said of Snyder’s purported lottery concerns.
Unlike Whitmer, Snyder was a bit of a political enigma. One of his top aides stated in a local radio interview after the vetoes that Snyder was just not very fond of expanding gambling. Clearly, his legislature didn’t really understand the full scope of his position when delivering him a bill just days before he was due to leave office. Whitmer, a former state senator, will more than likely make her position on the bill known before it reaches her for a signature. She’s very interested in raising revenues.
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